US bond investors have been preparing for a rebound in the US treasury market, and now they hope to be supported by the US inflation data released on Thursday.

As traders bet that the US June CPI data will slow down, the bullish bets on US bonds are increasing. This week, Federal Reserve Chairman Powell reiterated that interest rate cuts depend on whether inflation will gradually slow down.

A survey conducted by FactSet, a data provider, showed that US CPI is expected to rise slightly by 0.1% MoM in June, mainly due to the decline in natural gas prices and the small increase in food and grocery costs. The YoY CPI for June is expected to drop from 3.3% in May to 3.1%. Core CPI is expected to rise by 0.2% MoM and 3.4% YoY. A rise of 0.2% or less in core CPI usually aligns with the Fed's inflation target.

Last month, weak May CPI data triggered the largest US bond rebound of the year, and raised market expectations for multiple interest rate cuts by the Fed this year. The market is pricing in two 25 basis point interest rate cuts by the Fed this year, and considers it highly likely that the Fed will cut interest rates for the first time in September, by about 60%.

Nathan Thooft, Senior Portfolio Manager at Manulife Investment Management, said,"If the data meets expectations or exceeds them, the likelihood of a rate cut in September will become even greater."

According to foreign media data, US bonds rose by about 0.6% in July, continuing their two-month upward trend. At the same time, data showed that traders have been placing bullish bets on the bond market every day since this month began.

In addition, a trading related to overnight secured financing rates appeared on Wednesday, which could profit if the market begins to raise its expectations of the Fed's interest rate cuts from two to three times this year.

These options contracts are anonymous, making it difficult to determine who is betting on them, but data shows that the premiums paid by traders for these positions are about $2 million.

This means that the upcoming CPI data may disrupt the market, especially after Powell's speech to lawmakers in Washington this week.

As part of his semi-annual testimony, Powell said he is looking for more evidence of weakening inflation, but he also warned that a late or insufficient rate cut could pose risks to the economy and labor market.

Institutions indicate that investors are cautiously engaging in trades that steepen the yield curve, which has caused them losses multiple times since December last year. Currently, a possible interest rate cut is the main market catalyst. Although the June CPI data may further support the reason for the Fed to cut interest rates in September, this will not be the final deciding factor, and a more complete belief may depend on July CPI data and the evolution of the labor market.

Edited by Jeffrey